1.Gladfly Ltd. specializes in custom paint jobs for motorcycles.The majority of its work arises from walk-in customers who have a general idea of the artwork they want on their bikes, but rely on Gladfly's staff to create the actual design.These are one-of-a-kind jobs.On occasion, a motorcycle club or a dealership will request that a specific design be used on a group of motorcycles, and the specific design is normally provided by the customer for these jobs.

Painting is done using an air compressor and a variety sizes of paint sprayers.In spite of regular cleaning and maintenance, the paint sprayers can clog and then the paint can be emitted in a burst, which can result in the need to repaint the design.When it is necessary to repaint, it may be possible to simply paint over the area, resulting in extra time and paint being used.If a significant problem arises, it may be necessary to remove the paint and start over, adding additional time and the use of solvents and other cleaning products.Job 322 required an additional $45 in paint and $60 in labour to repaint part of a design due to a clogged paint sprayer.

Additionally, some designs are very detailed and intricate, requiring hand-painting with fine brushes.These designs are particularly prone to problems, requiring touch-ups and the occasional repainting in order to meet the customer specifications.Job 410 required repainting with additional paint costs of $21 and additional labour of $75 due to the intricacy of the design.

Required:

3a)Assist the owner of Gladfly by explaining how to properly account for the additional costs of repainting motorcycles.None of the repainting costs have yet been recorded.Prepare two separate journal entries for the repainting on each job identified above.

1b)Explain why, in the real world, companies do not always follow the recommendation made in part a) of this question.

2.Glover Industries Ltd. has three support departments, Human Resources, Information (IT) Services, and Legal Services.There are also three operating divisions, Consumer Products, Industrial Products and Consulting. The following information has been collected for these six units:

Human Resources

IT Services

Legal Services

Consumer Products

Industrial Products

Consulting

Total costs

$160,000

$625,000

$240,000

$1,600,000

$2,700,000

$910,000

Number of employees in unit

3

5

2

15

22

8

Payroll cost in unit

$160,000

$225,000

$180,000

$700,000

$1,200,000

$660,000

Number of consultations with Legal

4

1

1

6

8

2

Hours spent on legal consultations

44

100

20

250

700

180

IT computing time used

2,700

5,100

1,200

6,240

8,320

2,000

Number of IT tickets created

3

0

4

4

6

5

IT Services requires other departments to create tickets whenever a problem arises and the IT staff is required to troubleshoot and solve the technical issue.Staff within IT Services does not create tickets, as staff simply fixes the problem as part of their day-to-day responsibilities.

In the current year, Legal Services had an issue arise from its own operations, and noted this on its activity list, when the above data was collected.

Required:

4a) For each support department, select an appropriate allocation base to be used to allocate the its costs to other units. Explain why you believe it is the best alternative of the six available activities.

4b) Use the Step-down Method to allocate the support department costs.Allocate IT Services first, then Human Resources and lastly Legal Services, and use the allocation base you selected in part a) of this question.If, however, you used the same allocation base for more than one support department in part a), choose again, so that there are 3 different allocation bases used here.What are the total costs assigned to each operating unit?

4c)Select a different, but still appropriate, allocation base for each of the support departments than you recommended in part a) and used in part b).Use these three different allocation bases and the Direct Method to allocate support department costs.What are the total costs assigned to each operating unit?

4d)Management has decided not to allocate the Legal Services costs to the operating units.Using whichever reasonable allocation base you prefer, allocate the costs ofHuman Resources and IT Services using the Reciprocal Method.What are the total costs assigned to each operating unit?This is not an Excel Solver question - it should be done by hand.

3.Gennifer Manufacturing Ltd. Is moving from a centralized to a decentralized structure, and is currently treating its Manufacturing Division as a profit centre and its Consumer Products Division as an investment centre.Management compensation will now include bonuses based on the performance of their division.

The variable costs incurred by Manufacturing are $75 per unit, with a full-cost per unit of $120 when fixed manufacturing costs are added in.There is an external market for the product, and the units sell for $180 each, before payment of a 4% sales commission.Consumer Products has been purchasing from Manufacturing, but is unhappy with the current transfer price.It has looked around and found a supplier that would supply a component part for $150 per unit, plus freight costs of $3.50 per unit.If Consumer Products purchases from Manufacturing, no sales commissions will be paid. You have been asked to provide assistance as the company determines an appropriate transfer price.

Required:

2a) Consider that Manufacturing has sufficient demand for its product that it can sell all units it produces to external customers.What would be the minimum transfer price that it would charge to Consumer Products?Explain why.

2b) What is the maximum transfer price Consumer Products would be willing to pay?Why?

4c) Manufacturing actually has enough idle capacity to produce all the units Consumer Products requires.What is the minimum transfer price?Would the manager of Manufacturing be willing to accept this transfer price?Explain.

3d) Will the company as a whole be better off if Manufacturing supplies Consumer Products, or if each division transacts with external parties? What impact will the compensation plan have on the likelihood that the managers of the two divisions will choose this option?

2e) Describe one action or decision that the CEO could take that would ensure that both managers act in a manner that is goal congruent with the firm as a whole.What is the downside, or negative consequence, if any, for this choice?

4.Flamand Enterprises Ltd. has been operating for a number of years.Selected information from the last three years' audited financial statements is as follows:

202020192018

Current assets500,000600,000550,000

Total assets1,400,0001,700,0001,500,000

Current liabilities350,000340,000300,000

Total liabilities730,000790,000650,000

Shareholders' Equity670,0001,110,000950,000

Sales revenue$2,100,000$2,300,000$1,650,000

Operating income260,000275,000200,000

Net income300,000245,000150,000

Flamand uses ROI to measure performance, with return defined as operating income and investment defined as average total assets. The weighted average cost of capital for the firm is 12%

Required:

5a)Calculate ROI for 2020 and 2019, using the Dupont method.Explain the change in performance between these two years.If Flamand wants to improve its ROI for 2021, where should it focus its efforts?Explain why you have drawn this conclusion.

2.5b)A new project has been identified that requires an investment of $140,000 in assets is expected to increase operating profits by $20,300.Should this project be accepted?Explain why your have made this recommendation.Calculate the new overall ROI for 2021 (no need to use DuPont method here) if the new project is accepted, if 2021 results from existing operations are the same as 2020 and this project is the only new investment.

2.5c)What is the proper tool to use to determine whether a new project should be undertaken?Why would a manager use ROI instead?Which performance measurement tool aligns well with the decision-making tool?

5.Jefferson Industries Ltd. is a successful and growing firm.It manufactures many products and is considering introducing another three products during 2021.The CEO has approached you, as a recent hire into the accounting department, with questions about whether or not implementing a Lean Manufacturing and Lean Management philosophy would be beneficial for the company. The concept was raised at the Board of Directors by an external board member whose firm has successfully implemented lean thinking.The head of the Accounting Department is months away from retirement and will not be available to lead the company through the process.

Required:

2a) Explain to the CEO what is meant by a lean thinking philosophy. Note there are only 2 marks available - this is a high-level understanding of the philosophy.

6b) Identify and describe three concepts that could be incorporated into the strategy of Jefferson Industries to achieve a lean thinking environment.Make sure the timing is clear, when in the operations of the company would this take place, and what difference will it make in operations.

6.Glowachuk Industries Ltd. is considering an investment in new equipment.The equipment has a cost of $2,000,000, will be depreciated for tax purposes at a CCA rate of 25%, and is expected to have a salvage value of $150,000 at the end of 6 years. The asset would be sold in year 7.The machine currently in use was purchased for $1,000,000 and has a net book value of $250,000.It would be sold for $50,000 immediately if the new equipment was purchased, resulting in a loss of $200,000.

This equipment is more efficient and is expected to increase production, resulting in an increase in annual cash revenues of $600,000.Variable operating costs per unit are expected to decline, but with the increase in volume, there is an expected net increase to cash operating expenses of $120,000 annually.Working capital is expected to increase by $90,000 when the equipment is acquired, and recovered at the end of year six.Glowachuk pays income tax at a rate of 20% has an after-tax cost of capital of 8%

Required:

3a) Calculate the tax shield on the investment in new equipment.

3b) Calculate the value of the lost tax shield on the disposition of equipment that should be taken into consideration when evaluating whether or not to acquire the new equipment.

1c) Calculate the value of the working capital recovery that should be taken into consideration when evaluating whether or not to acquire the new equipment.

2d) Explain why the net present value method is superior to the payback period method for determining whether or not to invest in a capital project.

7.Swancorp Ltd. operates an oil refinery in Alberta that processes 100,000 barrels of crude oil a day.At the present time, it pays $68.55 per barrel of crude out, which produces 45 gallons of outputs: 45% is gasoline, 25% is diesel, 16% is midweight fuels such as kerosene, 5% is bitumen and 9% is other, such as paraffin wax.Gasoline and diesel can be sold at the split off point, when distillation is complete.Mid-weight fuelsand other outputs can be sold at the split-off point, or processed.Joint costs of production amount to $3,000,000 per day.The following data has been gathered:

Gasoline

Diesel

Midweight

Bitumen

Other

Value at split-of point

2.00/gallon

1.63/gallon

1.88/gallon

0.63/gallon

1.55/gallon

Selling price if processed further

N/A

N/A

3.15/gallon

N/A

2.75/gallon

Additional cost to process

1.25/gallon

0.50/gallon

Swancorp. has a contract with the government to sell all the bitumen it produces, which is then used by the government to produce asphalt used for highway construction and repair.The price paid by the government is the full cost of production, plus a markup of 15% to cover administrative costs plus a profit margin.

Required:

5Which method of allocating joint costs do you recommend, given the existence of a cost-plus contract for determining selling price?Explain your reasoning and support your answers with calculations, showing the joint cost allocated to the bitumen only. No marks are available for allocating any costs to any other joint product.

8.Heather's Diner is considering implementing a balanced scorecard, as both a planning and performance evaluation tool.In the restaurant industry, customer satisfaction is the primary determinant of success.Restaurants provide a service, not a product, so the whole experience at the restaurant is as important as the quality of the food.Customers' expectations for ambiance and service vary significantly with the costliness of the meals and beverages, with a minimum expectation that the food tastes good and is safe to eat.

Heather's Diner provides both typical diner food such as all-day breakfasts and an array of burgers and sandwiches.In addition, however, it offers a variety of Ukrainian specialties from her grandmother's recipes.The menu attracts two different groups of customers because of the selections on the menu.

The majority of the customers are known to the staff, as they have eaten in the restaurant more than once.

Required:

6a) Describe three performance indicators that could be included in the customer perspective of the Balanced Scorecard to measure customer satisfaction.For each of the three measures, indicate whether it is a direct or indirect method of measuring customer satisfaction, and how the diner can go about collecting the data you are recommending.

2b) Explain how the emphasis on improving customer satisfaction ties in to the financial perspective of the Balanced Scorecard.

2c) Be creative.Propose one change in the operations of the restaurant that Heather's Diner might incorporate to increase customer satisfaction. In a strategy map, where would you place this recommendation?Why?

8.Gilda Ltd. sells three different electric hair styling products to home consumers: traditional nozzle-style blow dryers, hair-brush style hair dryers and flat irons. Total sales for 2020 was expected to be 30,000 units with an expected sales mix of 1 hair-brush style dryer and 3 flat irons for every 6 nozzle-style blow dryers.The budgeted selling prices were as follows: $50 for the nozzle-style hair dryer, $60 for the flat iron, and $90 for the hair-brush style blow dryer.The budgeted contribution margin was $30 for a nozzle-style blow dryer, $25 for the flat iron, and $45 for the hair-brush style blow dryer.

The three products are considered substitutes; Gilda expects an individual customer will purchase only one of the three available products.Actual sales were as follows:

Nozzle-style

Brush-style

Flat Iron

Total

Sales in units

15,750

11,550

7,700

35,000

Actual selling price per unit

$55

$85

$60

Actual contribution margin / unit

$32

$43

$26

Required:

4a) Calculate the Contribution Margin (CM) Sales Volume Variance, CM Sales Mix Variance and CM Sales Quantity Variance for ONE of the three products. Make sure it is clear whether each variance if Favourable or Unfavourable.

2b)Select a different product and calculate the Contribution Margin Variance, clearly indicating whether it is Favourable or Unfavourable.

4c) In 2020, the market was expected to be 300,000 units for all three products.The total actual sales in the market as a whole was 400,000.Evaluate Gilda's performance in 2020, taking this information into consideration.